Q2 2023 The GEO Group Inc Earnings Call

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Please note. This event is being recorded I would now like to turn the conference over to Pablo Paez Executive Vice President of corporate Relations. Please go ahead.

Thank you operator, good morning, everyone and thank you for joining us for today's discussion of the Geo group's second quarter 2023 earnings results with.

With us today are George <unk> Executive Chairman of the board, So, let's say Gordo Chief Executive Officer.

Brian Evans, Chief Financial Officer, Wayne Calibrates true, Chief operating Officer, and James <unk> President of Geo secure services.

This morning, we will discuss our second quarter results as well as our outlook and we will conclude the call with a question and answer session.

This conference call is also being webcast live.

On our Investor website at investors <unk> com.

Today, we will discuss non-GAAP basis information a reconciliation from non-GAAP basis information to GAAP basis results is included in the press release and supplemental disclosure we issued this morning.

Additionally, much of the information we will discuss today, including the answers. We gave in response to your questions May include forward looking statements regarding our beliefs and current expectations with respect to various matters. These forward looking statements are intended to fall within the safe Harbor provisions of the securities laws.

Our actual results may differ materially from those in the forward looking statements as a result of various factors contained in our securities and Exchange Commission filings, including the Form 10-K, 10-Q, and 8-K reports with that please allow me to turn this call over to our executive Chairman George <unk> George Thank you Pablo.

Good morning to everyone and thank you for joining us on our second quarter of 2023 earnings call.

I'm joined today by our senior management team to review, our second quarter financial results discuss our financial guidance and debt reduction objectives and provide an update on the trends for each of our business segments.

This morning, we reported quarterly revenues of approximately $594 million GAAP net income of approximately $30 million and adjusted EBITDA of approximately $129 million all of which were ahead of the midpoint of our previously issued guidance for the second quarter of this year.

Year.

Our second quarter results reflect stable performance from our secure services business unit and our Geo reentry services segment.

Geo secure services recently renewed contracts for the 2000 bed Blackwater River Correctional facility in Florida, and the 2682 Beth Laughton Correctional.

And rehabilitation fiscally, Oklahoma.

And Geo reentry services recently renewed 15 existing contracts for our residential reentry centers and 12 existing contracts for our nonresidential day reporting centers.

During the second quarter, we reactivated our 1900 bed great Plains Correctional facility under a new lease agreement with the state of Oklahoma.

The new lease has initial term of five and a half years with subsequent unlimited one year options.

And is expected to generate annual straight line lease revenue of approximately $8 $5 million.

Our GTI Transportation Division also recently entered into an emergency contract to provide air operations support for ice, which is expected to generate up to approximately $16 million in revenues.

Over a nine month period, assuming the contract runs through its full term.

We hope to continue to be a strong container for the currently active procurement of the multiyear contract for these services, which presently remains under bid protest.

Our diversified business units delivered overall strong operational and financial performance during the first half of.

2023, despite some headwinds in our electronic monitoring and supervision services segment.

As we have previously discussed the number of participants in the federal government's intensive supervision and appearance program or.

Our ice tab has declined since the beginning of this year. However, we have recently seen a slower rate of decline in ICF participants. Additionally, we believe that recent policy decisions could result in an increase in the number of participants being.

Enrolled in ISS.

While the decline in ICF participants continued throughout July and early August which was longer than we previously estimated we continue to believe that the ice that participant count is likely to stabilize and then to begin to increase moderately.

With respect to our ice processing centers, we have experienced a 20% increase in population since early may are occupancy rates remain below historical levels.

As it relates to the federal budget for school year, 2024, which begins in October 1st the household Representatives approved their version of the Homeland Security Appropriations Bill in June .

The house Bill would increase beds to 41000 and includes a provision that would require the use of <unk> monitoring.

Capabilities for all individuals in the non <unk> docket for the entire duration of their immigration proceedings.

In July the Senate approved its version of the Homeland Security Appropriations Bill keeping funding for ice beds at the current level of 34000 beds and slightly increasing the overall funding available for alternatives to detention programs.

Congress adjourned for their August recess without an appropriations deal in place.

If a new budget does not approve when Congress Reconvenes Congress could as we've seen in prior years approved funding for the federal government and federal fiscal year 'twenty for <unk>.

We're a short term or long term continuing resolution.

We believe that under a continuing resolution ice is most likely to be provided appropriations consistent with the agency's current funding levels for 'twenty three.

We are continuing to monitor the congressional appropriations process and remain focused on providing high quality services on behalf of DHS and ice.

We are also continuing our efforts to market, our current idle facilities to federal and state government agencies.

With the recent activation of our Great Plains facility we.

We now have approximately 9000 idle one beds in our secure services segment.

Primarily comprised of five former Federal Bureau of prisons facilities.

We believe that these modern and well located facilities could generate significant incremental annualized adjusted EBITDA. If they were to be reactivated either under <unk> management or lease to state or federal agencies.

Our management team also remains focused on reducing our net debt, which is a key strategic priority for our company as we have previously discussed our objective is to reduce net debt by approximately $175 million per year on average over the next two years.

And we remain hopeful to be able to refinance portions of our debt potentially in the next 12 to 18 months.

I'll now turn the call over to Brian Evans to address our financial results and guidance in more detail.

Thank you George good morning, everyone.

As we reported this morning, our second quarter 2023 results exceeded our previously issued guidance.

We reported GAAP net income of approximately $30 million on a quarterly revenues of approximately $594 million.

We reported quarterly adjusted EBITDA of $129 million and net operating income.

A $170 million.

Quarter 2023 results reflect the reactivation of our great Plains Correctional facility in Oklahoma.

Under a new lease agreement.

Which is expected to generate approximately $8 $5 million.

<unk> straight line lease revenue.

Our second quarter 2023 results also reflect an increase of approximately $26 million and net interest expense compared to the second quarter of 2020 to.

Due to higher interest rates and the debt restructuring transactions, we completed in August of 2022.

Moving to our guidance for 2023.

This morning, we provided updated guidance for the full year 2023 to reflect our updated expectations regarding the timing of participant levels under our <unk> contract.

Our previously issued guidance for 2023 assumed that the number of ICF participants would stabilize at the midpoint of the year and then moderately increased during the third and fourth quarters.

Although the number of ICF participants continued to decline throughout the month of July .

In early August which was longer than we previously estimated we continue to believe that the <unk> participant count is likely to stabilize and then begin to increase moderately.

We are aware of various recent policy changes that may add participants to ICF program as well as move participants to different monitoring alternatives.

It is difficult at this time for us to calibrate the net financial result of the new policies.

Consequently, we are taking perhaps a likely conservative approach in forecasting yearend ICF participation and financial results.

This assumption is the major basis for our updated financial forecast for the balance of the year.

We expect full year GAAP net income to be in a range of $95 million to $110 million in annual revenues of approximately $2 4 billion.

We expect our full year 2023, adjusted EBITDA to be between $490 million and $520 million.

We expect our effective tax rate for the full year 2023 to be approximately 29% exclusive of any discrete items.

For the third quarter of 2023, we expect GAAP net income to be between 19 million and $26 million on quarterly revenues of 588 million to $603 million.

We expect our third quarter 2023, adjusted EBITDA to be in a range of $115 million to $130 million.

For the fourth quarter of 2023, we expect GAAP net income to be between 19 million and $27 million on quarterly revenues of 595 million to $610 million.

We expect our fourth quarter 2023, adjusted EBITDA to be in a range of $115 million to $130 million.

Our guidance assumes steady performance from our other segments without any meaningful change in occupancy rates at our ice processing centers, which currently remained below historical levels. Our guidance also does not include the potential reactivation of any of our remaining idle secure services facilities, which total <unk>.

Approximately 9000 beds.

Moving to our capital structure, we continue to focus on reducing our overall net debt.

Our objective is to reduce net debt by approximately $175 million per year on average over the next two years.

During the second quarter of 2023, our total debt was approximately $1 $94 billion.

And our net debt remained stable at approximately $1 91 billion due to the timing of our cash flows throughout the year during.

During the third quarter of 2023, we expect to reduce net debt by approximately $75 million, resulting in net debt of $1 $84 billion.

Based on this pace of debt reduction, we would expect to end this year with approximately $1 $8 billion in net debt and further reduce net debt to approximately $1 $16 billion by the end of 2024.

Our debt reduction estimates for 2023 assumed the closing of our sale of the reentry facility for approximately $15 million in the third quarter.

We expect to explore additional asset asset sales to complement our debt reduction efforts, we have a number of residential reentry for assets that we are actively marketing for sale.

We may also consider the sale of some larger secure services facilities. If the price adequately reflects their value. However at this time, our focus remains on marketing our idled secure facilities for reactivation, either under a traditional management contract or a lease agreement.

Similar to that of our great Plains facility in Oklahoma.

Our goal continues to be to reduce our overall quantum of debt decreased our net leverages as quickly as possible and refinance portions of our debt potentially in the next 12 to 18 months.

As we execute this strategy, we hope to reduce our interest expense and gained more flexibility under our credit agreement to explore options to return capital to our shareholders in the future.

At this time I will turn the call over to James Black for review of our Geo secure services segment.

Thank you Brian Good morning, everyone. It is my pleasure to provide an update on Geo secure services during the second quarter of 2023, our superior services facilities successfully underwent 51 audits, including internal audits government reviews third party accreditations and prison rape elimination.

<unk> certifications.

Four of our secure services facilities received accreditation from the American Correctional Association with an average score of 99, 4% and.

And another five of our facilities received <unk> certification.

Our GTI transportation Division and our Geo Amey U K joint venture completed approximately $4 2 million miles driven in the United States and overseas during the second quarter.

Moving to the current trends from our government agency partners at the federal level populations at our contract U S. Marshals detention facilities continue to be stable.

Our U S marshals facilities around the country to support the agency as it carries out its mission of providing custodial services for pretrial detainees facing federal criminal proceedings.

We believe that all of these important facilities provide needed bed space and services near federal courthouses, where there is generally a lack of suitable alternative detention capacity for the U S Marshals service.

Moving through our ice processing centers, we recently experienced a 20% increase in populations across our facilities. Since early may however, occupancy rates at our ice processing centers remain below historical levels as.

As George noted Congress has left for August recess without reaching a compromise on the fiscal year 2020 for homeland Security Appropriations Bill.

Currently the house version of the Bill would fund ice for 41000 beds, while the Senate version would maintain funding at 34000 beds.

If a compromise between the house and the Senate has not reached a potential outcome could be the passage of a short term or long term continuing resolution that would likely fund the federal government at the current funding levels when the new fiscal year begins on October one.

As a long standing service provider to the federal government. We played no role in and have no control over congressional appropriations decision or the implementation of immigration policies.

Our focus remains on providing the highest quality services to ice and we stand ready to support the agency with any additional services as needed.

Our ice processing centers have a long standing track record delivering professional support services on behalf of ice and providing secure residential care consistent with our commitment to respecting the human rights of all of those entrusted to our care.

Our ice processing centers offer a round the clock access to quality health care services.

Healthcare staffing at our ice processing centers. It is generally more than doubled the number of health care staff in a typical state correctional facilities.

Our ice processing centers also offer access to legal counsel and legal libraries and resources and we have dedicated space in our centers to accommodate meetings with legal counsel.

Our ice processing centers also provide daily meals that are culturally sensitive and approved by a registered dietitian.

We also provide access to faith based and religious opportunities and we partner with community volunteers as needed to ensure fair representation of various space in denomination.

Our ice processing centers also offer access to quality recreational activities. We have made significant investments to provide enhanced amenities at our centers, including Arctic virtual tourist soccer fields covered pavilions exercise equipment and multi purpose.

We have also historically provided secure transportation services and logistical support horizon, primarily at 12 of our ice processing centers.

Our GTI Transportation Division also recently entered into an emergency contract to provide air operation support for ice, which is expected to generate up to approximately $16 million in revenues over a nine month period, assuming the contract runs through its full term.

We hope to continue to be a strong contender for the currently active procurement of a multiyear contract for these services, which presently remains under bid protests.

Moving to our state government agency partners during the second quarter of 2023, we reactivated the 1900 bed great Plains Correctional facility under a new lease agreement with the state of Oklahoma.

The new lease has an initial term of five and a half years effective may one 2023 with subsequent unlimited one year renewal options.

Over the term of the lease we expect to generate straight line lease revenue of approximately $8 $5 million annually and we will be responsible for maintenance capital expenditures property insurance and property tax payments.

With the reactivation of our Great Plains facility, we now have approximately 9000 idle beds and our secure services segment.

Comprised primarily of five former bureau of prison facilities.

We believe these are very valuable modern and well located accidents assets.

Which we are continuing to actively market to government agencies at the state and federal level.

Also in the state of Oklahoma, We recently renewed our contract for the 2682 bed Lawton Correctional facility for a one year term effective through June of 2024.

And in Florida, we renewed our contract for the 2000 beds Blackwater River Correctional facility for a two year term effective through October of 2025.

Our state Correctional facilities, and delivering high quality support services across seven states, including enhanced rehabilitation programs on behalf of Correctional departments in Florida, Georgia, Indiana, Oklahoma, Arizona, New Mexico and Virginia.

Finally, with respect to our international markets, we have begun delivering primary health services across 13 public prisons in Australia under our new health care contract with the state of Victoria.

This new contract commenced on July one and.

And this is expected to generate approximately $33 million in annualized revenues.

At this time I will turn the call over to Wayne calibration for a review of Geo care.

Thank you James I am pleased to provide an operational update on our Geo care business unit, starting with our reentry services Division.

During the second quarter, our reentry services facilities successfully underwent 33 separate audits, including internal audits government reviews third party accreditations and previous certifications.

Five of our residential reentry centers received accreditation from the American Correctional Association with four of those centers receiving perfect scores of 100%.

We also renewed 15 residential reentry contracts, including five with the Federal Bureau of prisons as well as 12 Nonresidential day reporting center contracts, including seven with the California Department of corrections and rehabilitation.

Our 35 residential reentry centers provide transitional housing and rehabilitation programs for individuals reenter read their communities across 14 states.

Our nonresidential and day reporting centers provide high quality community based services, including cognitive behavioral treatment for up to 8500, Parolees and probationers at 90 locations across 10 different states.

Outcome reports generated for several clients continue to demonstrate the positive impact of these centers in terms of risk reduction employment gains and some variety gains for participants with program completions, increasing during the second quarter of the year.

Moving to our Geo continuum of care and in prison programs Division during the second quarter, we delivered enhanced in custody rehab and post release support to an average daily population of approximately 2600 individuals at 31 in prison programs and approximately.

2400 individuals at 13 continuum of care sites.

Our in custody rehabilitation services include academic programs focused on helping those in our care attain high school equivalency diplomas.

We've made a significant investment to equip all of our classrooms with smart boards to aid in the delivery of academic instruction at these facilities.

We are also focused on developing vocational programs that not only lead to certification when completed but are also based on market job placement needs.

Our substance abuse treatment programs are an important piece of our rehabilitation services because many of the individuals in our care suffer from addiction.

Our facilities provide extensive faith based and character based programs as well and.

And we have designated faith based in character based housing units or dorms across our facilities to enhance the delivery of these programs.

Overall, we completed more than 670000 hours of in custody rehabilitation programs during the second quarter of 2023.

Our academic programs awarded approximately 830 high school equivalency diplomas and our vocational courses awarded approximately 930 vocational training certifications.

Our substance abuse treatment programs awarded approximately 2000 program completions and we achieved approximately 5000 behavioral program completions and more than 3300 individuals cognitive behavioral treatment sessions.

During the second quarter, we also allocated over $350000.

Most released services to support approximately 500 individuals released from Geo facilities as they return to their communities.

Our geo continuum of care integrates enhanced in custody rehabilitation, including cognitive behavioral treatment with post release support services that address critical community needs.

Released individuals.

We believe our award winning program provides a proven model on how the 2 million plus people in the United States Criminal Justice system can be better served in changing their lives.

Finally, turning to our electronic monitoring and supervision services segment. Our bi subsidiary provides a full suite of monitoring and supervision solutions products and technologies on behalf of federal state and local agencies across the country.

At the federal level since the beginning of this year, we've experienced a decline in the number of participants required to be monitored under our <unk> contract with the department of Homeland Security.

However, we've recently seen a slower rate of decline in ice that participant numbers and we believe that recent policy decisions could result in an increase in the number of participants being enrolled in <unk>.

<unk> has provided technology solutions holistic case management supervision monitoring and compliance services under ICF for almost 20 years.

<unk> tenure, the federal government supervision and appearance program has achieved high levels of compliance using a variety of new technologies and case management services over that period of time.

As we continue to promote innovative solutions under this important program, where what we are working with ice to conduct two pilot programs for <unk> barrel watch.

<unk> is our new risk Warren GPS tracking device, which provides government agencies with additional means of achieving compliance with their established policies and objectives. We are actively marketing this innovative new product to government agencies across the country.

And at this time I will turn the call over to Jose Gordo for closing remarks, Thanks, Wayne in closing our diversified business units delivered strong financial and operational performance during the second quarter and the first half of 2023.

We remain focused on reducing our overall net debt and positioning our company to refinance portions of our debt in order to reduce our interest costs and gain the flexibility to potentially return capital to shareholders in the future.

We believe we have several potential upside opportunities, including increased populations at our ice processing centers and our increased number of participants enrolled in our shop.

The activation of additional idle secure facilities, where we have a total of approximately 9000 available beds either under Geo management are under leased the state or federal agencies.

New managed only contract wins by our reentry electronic monitoring secure transportation or international divisions, and the opportunistic sale of noncore assets.

We also expect to continue to selectively pursue new areas of growth both with our current government agency clients as well as with new clients and our in service lines that are adjacent to or complementary with our existing business.

In seeking these future growth opportunities, we plan to leverage our successful track record and the talent of our employees, who we believe are the best in our industry.

We believe our valuable assets underpin a compelling valuation case for our company.

We own approximately 45000 beds at secure facilities that we believe are generally more modern and better located than many of the existing public facilities in those geographic markets.

We believe that the aggregate replacement value of these beds alone based on estimated current construction costs and sales of comparable facilities is at least equal to or in excess of our current enterprise value.

And this valuation is before taking into account the significant operating cash flows and real estate values of our other diversified segments, where we have significant assets and substantial market presence.

Based on our conservative valuation of these various components, we believe that our current stock price is significantly undervalued, which we believe represents a compelling case for equity investors.

We have consistently delivered as an essential government services provider at the federal and state levels through both Republican and Democratic presidential administrations for almost 40 years.

We do not accept political priorities of our agenda and we played no role in policy decisions related to our industry.

Instead, we remain steadfast in our commitment to being a consummate professional organization that our clients can trust with complex resource intensive and critical projects and that prioritizes the wellbeing of those entrusted to our care.

We are proud of our over 18000 employees worldwide, who carry out our mission on a daily basis with great purpose and professionalism and we stand ready to continue to meet the future demands of our clients as they may continue to evolve.

That completes our remarks, and we would be glad to take questions.

We will now begin the question and answer session.

To ask a question you May Press Star then one on your Touchtone phone.

If youre using a speakerphone please pick up your handset before pressing the keys.

If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

Yes.

The first question today comes from Joe Gomes with Noble capital. Please go ahead.

Good morning, and thanks for taking my questions.

Good morning, Jeff.

So wanted to start out in.

<unk> said, you see a 20%.

The increase in population since the ending of.

Titled 42.

I know that most of your guys' ice facilities operate on their minimums.

So what is the occupancy levels at those facilities now.

Are you past the minimum level. So that if you were to receive additional populations would start seeing a more more of a contribution to the top and bottom lines.

Many of our.

Facilities do have a minimum guarantee and.

Sure.

<unk>.

But.

Theres a few select ones that we are below that minimum guarantee and the.

Continued increase in occupancy will.

Materially.

Enhance our financial results.

Some let me put a more simplistically some facilities, particularly along the southern border are full.

Other facilities located in.

The coastal or northern states are not as full and.

As we see the changes.

Border policies become implemented.

And the very possibility of more people coming across the border as temperatures cool in particular, we think the populations may continue to increase.

Thank you.

Put a short answer some are already full but others are not and we have plenty of capacity.

Okay.

And for that.

And.

SaaS.

I understand.

What you said today.

In terms of.

The numbers are.

<unk> declined for a longer period of time than I think than you were originally anticipating but what gives you confidence there.

At the participant level will either stabilize or hopefully go back up in the second half of this year.

Okay.

Because of.

A combination of different policies that.

Don't want to go into.

Detail, then because we're really not authorized to discuss da.

DHS policies, but we are aware of these policies and.

They.

In effect provide for a wider use of the alternatives.

Detention programs as well as.

A shifting of.

<unk>.

Participants are in that program and what monitoring devices they may be using.

Okay. Thank you for that.

And then.

If I run my numbers correctly here quickly.

It looks like operating expenses were about 72% of revenue, which is up from.

A little over 71% in the first quarter.

Again.

Members are correct would be about the highest level since the first quarter of 'twenty one I'll.

I was just wondering what there is.

Anything particular that you could point out that drove that operating expense level higher in the second quarter.

No I don't think so I do think that you have.

Some normalization of higher wages and more staff being brought onboard so.

Youre going to see some of that and then the.

The decline in the.

Yes.

In the accounts and the highest that program.

That's a higher margin.

Segment, so that that's affecting that as well.

Okay.

Then one last one for me and I'll get back in queue.

Not quite sure if I heard you mention.

Yes.

The net debt level. This this quarter it looks like again, if I'm running my numbers correctly here quickly.

It went up sequentially and the net debt level is that is that accurate and if so what was driving that.

So I think as I discussed and maybe George mentioned quarter over quarter. The net debt is about the same it.

It was up like 5 million that's.

That's mainly just timing of working capital issues in this quarter, we had a significant amount of.

Interest and principal payments. So we used a lot of cash for that we accrued it ratably.

Ratably towards this quarter, but we had to lay it out all out this quarter.

So next quarter as I mentioned in my remarks, we expect.

A significant reduction in net debt about $75 million or so.

Right right Okay.

Thanks for that Brad I. Appreciate you guys, taking taken the time to take my call. Thank you.

The next question comes from Brian <unk> with Wedbush Securities. Please go ahead.

Hi, good morning, Thanks for taking my questions.

Just on the <unk> program based on the current funding level.

And assuming that that continues over time, I guess is there any sort of minimum participant.

Count that you are able to disclose based on the current funding levels.

No I don't think there is.

I don't think that's ever been discussed.

Okay.

Piston count.

Yes.

And then.

The partners I guess is there anything notable to report on any per diem increases with state partners or any potential newer theater state County partners in the pipeline.

Periodically we have.

Re negotiations, particularly with our our federal partners.

Regarding increased department of labor.

Pages that have to be applied to our facilities in the <unk> contract modifications that.

Implement those increases at the state level most of the states have a July one.

Fiscal year starting point.

Sure.

There'll be beginning the process of.

Establishing their proposed budgets for the following year and we will.

In select cases.

<unk> request for additional funding for our facilities typically relate to increased wages due to market conditions or increase met.

Medical service costs.

Again related to either.

Pandemic or market conditions for <unk>.

Pages on health care staff.

Understood. Thanks, and then just one more if I could on the there was a comment about providing air operation support to ice made earlier in the call and I believe it was $16 million of revenue.

I'm just curious if that's something that's going to start immediately in the third quarter or is there any sort of incremental investments needed and then.

I think theres a larger contract.

Just curious what kind of opportunity that can be.

He is a contract that we referenced today was an emergency contract.

<unk>.

Which we were a.

Some subcontractor to a prime our role was to provide the security staffing on the on the.

The airplanes that travel either domestically or internationally. So we are a subcontractor to a prime that was awarded in an emergency contract that contract can run I think eight or nine months.

Until a decision is made regarding the <unk>.

Procurement.

That is a long term contract.

That that procurement has been protested by several of the.

Competitors are.

Proposes that submitted to the procurement, including our team.

It's comprised of.

Prime that we are involved with it.

As a subcontractor. So we are one of the protesters in that procurement, we are presently involved with our.

Partner, providing the services over the course of the next.

Two eight or nine months.

Thank you I appreciate it.

The next question comes from Brendan Mccarty with Sidoti. Please go ahead.

Hi, Yes, good morning, and thank you for taking my questions.

First one here I'm just looking at ice populations I think you mentioned they were up roughly 20% in your facilities I was wondering I'm curious is that in line with overall.

Population increases.

Total ice facilities.

No I think I said earlier that some facilities along the southern border our full others away from the border are.

Still have vacant beds, we have plenty of capacity.

The.

31000 people that are reportedly.

Detained in facilities at this time, we have.

Most 11000 of those individuals in Geo facilities. So we have.

Over one third of the individuals that are presently being obtained locate.

Are housed in Geo facilities, we have one third of the market share and presently the private sector provides approximately 90% of the detention capacity in the country with only approximately 10%.

Share going to cities or counties that have contracts with.

Yes for the housing of detained individuals.

Got it that's helpful. And then just regarding some of the idle facilities I believe according to my notes. Some are located in Texas I'm, just curious if you're having any conversations with ice.

Just about opening some of those facilities for.

The anticipated increase in <unk>.

And ice populations that we've seen.

Yes, I think it's fair to say we have several.

Conversations going on regarding different facilities and it usually comes down to a matter of.

Our funding and their budgets.

So they have to await.

At the federal level.

New federal budget, which starts October one at the state level funding.

Funding that will probably be approved sometime in spring of next year.

Okay, Okay, and then one more if I may.

Some expense line items I know, we talked about operating expenses driven by higher wages, but it looked like there was a large decline.

And general and administrative expenses I was just wondering if you could comment on that decline.

Nothing significant I think just some.

Maybe lower labor cost compared to a year over year professional fees.

Especially with our legal department legal fees.

In prior quarters, we've had some higher activity on some of the cases the companies.

Undertaken to defend so nothing nothing specific beyond that stuff there.

Great. Thank you that's all for me.

The next question comes from Kirk Ludtke with Imperial capital. Please go ahead.

Hello, everyone. Thank you. Thank you for the call.

Hey, Kurt.

Just a couple of follow ups with respect to the ice population you mentioned you have 11000.

People in your ice facilities, where did that peak.

Like pre Covid.

Okay.

Where does it peak later this week.

We're canopy.

What was our peak.

Population before the pandemic.

David.

I would say 14 15, something like that.

Okay. Thank you.

That's helpful.

You mentioned that there's potential for some incremental ICF funding and.

I missed what you said and I was just curious if you could maybe elaborate on that.

And maybe quantify it.

Well no I didn't say there was a potential for additional <unk> funding.

Although that may be the case there is the potential.

<unk> four increased participation in the <unk> program, which may require additional funding which would necessitate.

Necessitate.

Ice having to find that additional funding within DHS or go to Congress for that additional funding.

But there's different policies on.

On extending.

Participation in the <unk> program and moving people around in the program for really cost efficiencies because of budget limitations, but those.

Those two things in concert.

Would provide for better use of the program more people on the program and on a more cost efficient basis.

Got it I appreciate it thank you for the clarification.

At the state level, there's been some.

Legislation in some states.

That would require.

Require some more stringent sentencing whats the outlook for the population.

Population in the states, where you are you have a presence.

Good question.

Could you repeat that question please.

My understanding is there have been some state there's been some state legislation that's basically.

Made.

Increase the minimum sentencing requirements I'm just curious if you if you have a you know what.

What you can say about the.

The trends in state population.

Where you do business.

The trend that we are responding to is one where.

Sure.

Different states.

That have either a growing population or even a stable population are facing physical plant problems with their aging facilities and.

They are faced with either having a close a facility and.

They really prefer not to have to build a facility. So they have an interest in one of our idle facilities, because it's a much more cost effective solution for them.

So.

Our facilities are by comparison.

Significantly newer.

And.

More modern Theyre, all air condition, they have artificial soccer turf fields.

The different amenities that we've discussed libraries.

The continuum of care educational programs.

<unk>.

By comparison our facilities.

Our attractive in the.

Correctional physical plant marketplace and will be.

And now continue into the future because the Sun belt States in particular had been adding population.

The older facilities and there are several states that are looking to.

For additional correctional space that they don't have internally within their own state because of the aging.

Facilities that are very going to be very expensive to fix if they can be fixed at all.

That's interesting very helpful. I appreciate it thank you.

The next question comes from Jordan Hymowitz with Philadelphia Financial Please go ahead.

Oh, Hey, guys. Thanks for taking my questions couple of things first on the ISR program. My understanding is there is a substantial amount of money that can be reallocated within DHS towards this that the current administration has been hesitant to do so it's not necessarily more funding, but it's a reality.

Occasionally funding that may become available is that the way you understand it.

Well I am aware that every department like DHS has the ability to shift funds around within the department to different agencies of that department and I would say.

We're through public.

Sure.

Publications of these stories that.

Okay.

That ice has asked for more funding for various reasons, including the.

Okay.

Alternatives to detention programs, which includes primarily the ice program.

Okay.

And on to the the.

Several Kate separately.

There are several cases in Florida before the appellate judge.

That would indicate that if it would be.

<unk> joined role in line with the preliminary circle that would be.

More people being.

Modern process do you know what the timing of any of those cases are.

No I really don't because I presume all of them are subject to appeal.

That that can be a very lengthy process.

Okay.

And final question is whether we go from 34 to 40 or somewhere in between at one point that number was 50.

And.

As we head towards our presidential election, the Republicans are going to obviously start talking about numbers like 50, again, let's say walk before and I guess my question is two fold. One is once you hit those minimums anything above.

32, 33, the incremental profit it has to be double because it's not substitute to minimum is that true and b. If we would go from.

We're like 30% to 50 would there be like a profitability that would be more than double on the present side of the business because the incremental margins are that much more profitable.

Well, it certainly will be more profitable it's difficult to calculate.

Because it differs from facility to facility, we haven't done it accumulative aggregate calculation of that number but it's significant because we have thousands of additional available beds and each of those beds is worth.

Between it.

Double digit number.

So the peer number of B has said the incremental profitability could be close to double with USB anything different from that once you get above the minimums.

No no I don't think our.

If I'm understanding your question correctly, you are saying that as the occupancy increases to something above our <unk>.

Many of them guarantees that the profitability of the company and the ice business with double that's not accurate.

Our contracts are priced with those guarantees to absorb a significant amount of the cost as well as the return.

And there is as George mentioned.

Incremental revenue it is material.

And it would benefit the bottom line, but it's not going to double our profitability.

The incremental <unk>.

People above the minimum in other words, if you go from.

9010 thousand various I think 13000 to 14000 once you get above those minimums the incremental profit is dramatically greater.

And like George said not necessarily it depends on how the contract is priced and what those incremental per dms are but it is meaningful.

Okay. Thank you and when can you start buying back the debt would you say.

Third quarter, well, we're going to make additional paydowns on that in the third quarter.

And when would the earliest the equity give me started.

We have to renegotiate that some of the terms and some of the credit agreement before we can do any meaningful equity buyback.

It's a 2024 number at earliest.

Probably 2024 is sustainable.

Okay. Thank you guys.

Thank you.

This concludes our question and answer session I would like to turn the conference back over to George <unk> Executive Chairman for the Geo group for closing remarks.

Thank you for joining us today and look forward to the next is that.

Mr Conference call.

Thanks.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

[music].

Yes.